LSE fights Nasdaq with divi-hike

The London Stock Exchange today launched a blistering attack on hostile bidder Nasdaq at the same time as promising its shareholders a large increase in dividends and forecasting a surge in profits.

Dismissing New York-based Nasdaq's £2.7bn, 1243p-a-share bid, LSE chief executive Clara Furse declared: 'This is an offer which does not even begin to reflect the standalone value of the Stock Exchange, let alone address the synergies or cost savings which it thinks it could make.'

She also claimed the bid today fromNasdaq is no better in terms of valuation of the Exchange than the 950p a share it offered and then withdrew back in March.

Applying the same price-earnings multiple today as was used in March would imply an offer of 1502p a share, she said. Nasdaq has built up a 29% stake in the LSE, whose shares were comfortably above the bid at 1317p today.

Furse added: 'Not only is Nasdaq offering a lower multiple today than it did in March, it is making a lower bid than the New York Stock Exchange is paying for Euronext despite the fact that the LSE is outperforming every other exchange in terms of trading, listings and growth.'

To prove its point, the LSE's advisers, Merrill Lynch and Lehman Brothers, have drawn up a profit forecast for the 12 months that end this month, rather than its actual year-end of March.

This shows earnings growth of not less than 58%, leading to earnings per share of 50.4p for the calendar year. At the same time, the board promises that the dividend for the actual financial year will grow by 50% to 18p a share.

Furse also said she was expecting support from the so-called hedge funds, which have steadily raised their stake in the Exchange to between 25% and 30% of the equity.

She said: 'What tend to be dubbed hedge funds causes confusion because these are actually sophisticated investors who understand value. We have been meeting them, and a number of them have said we represent value. These are people who put us in the global exchanges sector rather than in a UK company context.'

Using today's earnings forecast the Nasdaq offer is worth 24.7 times the LSE's earnings whereas the shares currently trade on 26.2 times earnings.

Giving international comparisons, the defence states that Nasdaq itself is on 47 times earnings while the New York Stock Exchange is on a massive 59.5 times. Of the major exchanges only Deutsche Boerse is on a significantly lower rating, reflecting the fact that it appears to have lost out in the global merger mania of exchanges.

Nasdaq, which has said that its 1243p offer will not be raised unless there is a counterbid or an agreed deal with the LSE, has until 11 January to come up with any further documents to support its case while the Exchange must make its final response by 20 January.

Furse refused to speculate what might happen next, saying: 'We have seen their Plan A ,which was designed to put pressure on our share price and has clearly not worked. I am certain there is a Plan B, but I'm not speculating what that might be.'

...But Euronext is set to clinch US merger

Euronext shareholders today prepared to approve the pan-European stock exchange's $14bn (£7.2bn) takeover by the New York Stock Exchange to create the first transatlantic bourse.

Opposition to the deal, which values each Euronext share at about e94, has melted away in the past couple of days although today's shareholder meeting in Amsterdam was still expected to be a lively affair.

Hedge funds have largely taken control of Euronext since the bidding war erupted earlier this year. The chance of a counterbid from Deutsche Boerse has evaporated, with the Germans unable to match the Americans on price or to find their way around competition hurdles.

Atticus, the hedge fund that claims to be Euronext's largest shareholder with a 10% stake, said last night that it would back the deal. It added that the merger should reward investors with better growth prospects and cost savings.

Another sign of the fading opposition came when five French banks, which had formed a shareholders' pact to oppose the deal, dropped the idea with at least three of them now reported to be in favour.

The deal also has almost unanimous approval of politicians and regulators in the six countries in which Euronext operates. Dutch Finance Minister Gerrit Zalm said yesterday that he was 'minded' to approve the bid, subject to satisfactory answers to some final questions. Another major opponent of the bid, The Children's Investment Fund, has been much quieter since its plans to hold a meeting to vote in favour of a merger with Deutsche Bˆrse were scuppered by Frankfurt's retreat.

A small number of Benelux investors, led by Robeco and Dexia, are also likely to voice opposition to the planned deal at today's meeting because they believe the takeover diminishes European influence

After today's meeting in Amsterdam, NYSE shareholders will meet in New York to approve the deal, which will ultimately lead to Liffe, the London futures market, being owned by the Americans.